Investors needs to consider how the new climate change agreement will change their investment portfolios, according to the head of sustainable funds at Royal London Asset Management.

The agreement, which was the result of the COP21 Climate Change Conference in Paris earlier this month, brought together nations from across the world.

It has been hailed as "the end of the fossil fuel era" by some, while others have received it with more caution.

Key points of the agreement include a long-term goal to limit global warming to well below 2C or 1.5C if possible; national pledges to cut greenhouse gas emissions in the 2020s; a plan to make countries pledge deeper emissions cuts and improve plans every five years; assistance for poorer nations from more developed ones; and plans to monitor progress and hold countries to account.

There will be a global 'stock take' in 2023, and every five years thereafter, to assess progress towards the aims of the agreement.

Mike Fox, head of sustainable funds at Royal London Asset Management said the pledges will require a huge amount of investment.

"A commitment to limit to rise in global temperatures has already been estimated to require USD 16.5 trillion of investment by 2030," he said.

"As governments seek to implement the Paris agreement, it is likely the penalties for poor environmental practices will only increase and corporates will have to adjust to making climate change a core principle in how they set strategy."

"Investors may have to pay a premium for those companies showing leadership in environmental management as they are likely to be more profitable."

Fox advised investors and fund managers to look out for innovative companies providing products and services with lower carbon intensity and likened their significance to the digital boom.

"These companies may well become as important as those created in the early stages of the internet – watch out for the next Google and Amazon, but this time in the area of energy efficiency, clean energy, or energy storage."

"Although the precise course of future events is, as always, uncertain the impact of events in Paris over the weekend will be with us for decades to come."

First published 17.12.2015

Lindsay.sharman@wilmingtonplc.com